George Bluth really really wants to control the market for n

George Bluth really, really wants to control the market for new homes in Orange County, California. The Bluth Company (“TBC””) currently controls about 60% of the market in Orange County, while TBC’s chief competitor, Stan Sitwell, controls about 25%, and various other companies control the remaining 15%. George approaches Sitwell to see if they can make a deal under the table to stop competing and join forces to corner the market, but Sitwell refuses. After being rebuffed by Sitwell, George decides to try and buy out Sitwell’s company. He is unable to raise enough cash to do so, however. Finally, he tries to corner the market all by himself by cutting his prices so low that his competitors could not possibly hope to compete. In fact, he cuts the prices for his new houses so low that he’s losing money on each one. Hopefully his competitors will go out of business soon and he can raise his prices back up once they do. Please answer the following questions: If Stan Sitwell had been open to George’s suggestion that they join forces, discuss two possible ways they could have acted that would be blatant violations of Section 1 of the Sherman Act. If TBC had been able to raise the money to purchase Sitwell, what type of merger would it have been? Would the government have allowed the merger to proceed? (hint: discuss Section 7 of the Clayton Act). Do George’s actions create an illegal monopoly under Section 2 of the Sherman Act? (hint: analyze ALL of the elements necessary to have an illegal monopoly).

Solution

The market is already oligopolistic because TBC has 60% market share and Sitwell has 25% market share and others have only 15% market share..Section 1 of the Sherman antitrust act restrains any collaboration which hinders trade commerce between different states or nations. The act envisages to reduce monopolies in an economy.

If Stan Sitwell would have agreed to the demands of George, it would have clearly violated the section 1 of Sherman Act. TBC already has a 60% market share and the acquisition would have increased the market share to 60 + 25 = 85% which would have led to a clear monopoly. George has reduced his house prices so low that he is making a loss on each sale but is aimed at removing competition and creating a monopoly. This is also a clear violation of Sherman Act. price fixing and bid rigging are violations per se and are illegal. If Stan would have agreed to George, it would be price fixing and a violation per se, hence illegal.

If TBC had the money to purchase Sitwell, it would be termed as hostile takeover.

the government would not have allowed rhe merger to take place as it would have violated section 7 of clayton act. Section 7 of clayton act prohibits mergers and acquisitions which are aimed at reducing the competition or which tend to create a monopoly. The merger was aimed primarily to reduce competition as it would have led to a market share of 85% being held by a single company.

George actions are clearly aimed at creating a monopoly, and section 2 of Sherman act prohibits attempts to momopolize a market. Or collusion between entities to restrict competition in a market. Hence, George actions to collude with Stan was a clear violation of the section 2 of sherman act. His attempt to now sell products at a loss is also a violation as it is aimed at removing competition gradually by putting them in loss by selling houses below cost price.